Friday, 29 July 2016

Panacea or pain in the SEC? Disclosure and transparency under scrutiny

The United States Securities and Exchange Commission (SEC) has been seeking comments on whether US public companies should make more disclosures regarding their intellectual property activities. Considering what an important issue this is, it's a little surprising that the volume of response to this request for feedback has not been greater, and that so little publicity has attached to it both outside the IP community and even within it.

To help raise awareness of this issue, we thought we would draw the attention of readers to some of the thoughts and opinions that have been recently articulated on the topic.  


Seasoned IP transactions attorney Ian D. McClure has written an article for the Fordham Intellectual Property Media and Entertainment Law Journal on how bad the current situation is with regard to the reporting of IP-relevant information. In this 46-page article ("Accountability in the Patent Market Part II: Should Public Corporations Disclose More to Shareholders?") he makes a number of trenchant points regarding inadequacies and inconsistencies under the current practice. He says (with footnoted citations removed):

"The materiality of patent information and whether an investor would consider it to change the “total mix” of information it needs or has depends a lot on how important patents really are to the value of a company. A determination about information specific to certain patents only, however, would likely be a case-by-case determination that includes factors such as (a) the number of total patents held by the company and the number of patents that are relevant to the information, and (b) the importance or relevance of the patents in question to the core business operations of the company.

Under the language of Item 2.01 of Form 8-K—Completion of Acquisition or Disposition of Assets of the Company [which you can study here: the 22-page form makes no specific reference to patents, intellectual property, licensing or intangibles, though 'asset' gets 53 mentions and transactions 44]—most patent acquisitions or sales by a company as large as and with a patent portfolio the size of IBM will likely not meet the ten percent of assets threshold [the relevant provision of 2.01 reads: "4. An acquisition or disposition shall be deemed to involve a significant amount of assets: (i) if the registrant’s and its other subsidiaries’ equity in the net book value of such assets or the amount paid or received for the assets upon such acquisition or disposition exceeded 10% of the total assets of the registrant and its consolidated subsidiaries;"]. For example, even if all of IBM’s 1,899 patents in CPC G06Q were invalid, which they are not, it would not come close to equaling ten percent of its assets, or even its patent assets. However, since the value of all patents are not equal, and the value of any particular patent to a company can be critical (consider Apple’s “swipe-to-unlock” patent), such an acquisition or disposition event should not be based solely on the number of patents".
Later McClure says:
"In general, empirical studies have proven that patent information such as patent litigation events do affect shareholder value [sometimes quite irrationally, since financial analysts are generally insufficiently IP-savvy to make sense of the facts on the ground: see eg earlier Aistemos blogposts here, on Apple and Microsoft, here, on AMP v  Myriad, and here on the Nokia-Samsung arbitration].  Other studies have offered that as much as eighty percent of corporate value may be attributable to intangible assets. ... The importance of information related to the potential devaluation of a patent portfolio, however, cannot be a “one-size-fits-all” determination. For small pharmaceutical or biotech companies that rely on one or a few families of patents for exclusive rights to build market share, the devaluation of a portfolio is a significant event".
He concludes:
"The question becomes this: as it relates to patent information such as knowledge of patent infringement, where do we draw the line between a risk preventative business strategy and a conscious decision not to disclose important information to investors? Patent licensing information is not available to shareholders, and so they could never know for sure if a company has a patent infringement risk or not. Similarly, the importance of certain patents to current and future business prospects, as well as the potential for certain patents to be invalid, is information that experts inside of a company know and (not without good reason) do not disclose publicly".
A similarly positive approach towards promoting greater disclosure is struck by a group of influential academics spearheaded by Colleen V. Chien, one-time Senior Advisor, Innovation and Intellectual Property, White House Office of Science and Technology Policy ("We ... are professors and scholars of economics and law who research and write about innovation and the patent system. Several of us have also held responsible positions in the U.S. government"). In an open letter to the SEC they write:
"In contrast with information about patents and trademarks, good information about IP licensing is much less publicly available. Although IP royalties provide large in­bound trade flows to the United States ..., remarkably little is known about the economic realities of IP transactions. Not only are licensing royalties economically impactful, but building a better understanding of how markets for technology operate in a modern, innovation economy is important for the transparency of markets, and to the public and policy­makers. Relatedly, data on “comparables” tend to be thin in the industry, a situation that may offer a sub­optimal market environment for startup firms: these young entities often rely on selling intangibles, but have low bargaining power, and limited resources to invest in search and price discovery. 
More disclosure might help since often IP licensing is largely hidden from public view. Many agreements are kept confidential, and even when they are part of public proceedings like litigation, they are commonly kept under seal ... More generally, open data on innovation is currently siloed, fragmented, and unfederated across a number of repositories... raising search and discovery costs and undermining the goals of open data".
Not all players in the IP community are as positive.  The US & Canada branch of the Licensing Executives Society, in its Summary Response, cautions: 

"The greater the granularity required in IP disclosure, the greater the risk to companies’ sales and profits and potentially to the economy generally, as a result of aggregate behavior changes throughout multiple industries that may be brought on by greater disclosure requirements; such changes could have negative consequences for the economy generally.

Greater disclosure concerning IP matters could put U.S. public companies at a significant competitive disadvantage with companies in other countries that do not have similar disclosure requirements, laying bare significant strategically sensitive information that may be exploited by foreign companies and governments.

While it may be true that in some cases material information may be revealed by broader IP disclosure requirements, the important question is whether we want to experiment with our publicly traded companies’ financial health and our economy’s health for investor benefits that are speculative".
So what should be done?
"Rather than regulation, LES suggests that the SEC consider using the voluntary consensus standards process (defined by the American National Standards Institute (ANSI) in the ANSI Essential Requirements) as a way to develop an approach to IP disclosure that balances the needs of all affected parties, including public companies of all sizes from a diversity of industries, investors, and government regulators, with input from IP valuation experts, economists, accounting standards people, and legal professionals".
The debate continues. Meanwhile, Aistemos affirms its support for the principle that there should be greater transparency in corporate IP-driven transactions, not just in the United States but in every jurisdiction and every market in which investment based on knowledge and understanding is preferred to the juggling of hunches, suppositions and inferences to which resort is sometimes made. Even the voluntary disclosure of transactional information by analogy with the voluntary disclosure of patent ownership details under the ORoPO Open Register of Patent Ownership would be an improvement. 

Thursday, 28 July 2016

Good or bad innovation: who can tell, and how?

"Good and bad innovation: what kind of theory and practice do we need to distinguish them?" is the question posed by Geoff Mulgan in an 8-page paper that Nesta has floated on the Twittersphere. Mulgan, Nesta CEO, is a social entrepreneur and academic who was formerly head of policy for former UK Prime Minister Tony Blair. Nesta is an independent charity that is designed to promote and encourage socially beneficial innovations. Accordingly he, and Nesta, are more concerned with the benefits that innovation can impart than with the profit-and-loss issues that beset the common-or-garden private sector research-based business. He asks:
"What methods should be used to distinguish good innovation from the bad? ... This paper attempts to provide a possible framework that complements these. It recognises the inherent difficulties involved in assessing future possibilities, while arguing that intelligent judgements can guide allocations of money and the design of policies and regulations".
Mulgan however sounds a note of caution:
"There are at least four grounds for scepticism about any systematic attempts to assess emerging technologies:

The first is that no-one can predict how technologies will evolve. Conference speakers love recounting the many examples of people closely involved in key technology sectors -- from computing and transport to energy -- who dramatically misread how their field would develop. Being an expert is no guarantee of being able to make accurate predictions.

The second is that even if you can predict how a technology will evolve, it’s very hard to predict who will benefit or suffer. ... Forecasts on the effects of technology on jobs over the last 50 years have been ... inaccurate -- indeed futurology has consistently exaggerated and misinterpreted the effects of automation on jobs. 
The third is that it’s impossible to define what the counterfactual to any given innovation is. A coal mine despoils nature and emits lots of CO2. But if the alternative is to chop down and burn a large forest, the mine might be better both for nature and the climate. This concern presumably applies to other innovations too. If a nuclear war happens at some point, then we would probably be better off had nuclear weapons not been invented. But if you were considering whether to invent the atom bomb in Los Alamos in 1943, your choice wasn't between inventing nuclear weapons or nuclear weapons never existing, but between you inventing them now or someone else likely inventing them later.

The fourth is a general problem of anything future-oriented: the incumbents who may stand to lose most from an innovation are likely to be well-organised and powerful, while potential future beneficiaries may be powerless and lack a voice.

These are all reasons for caution and humility. In any system it’s useful to allow a fair degree of freedom either for inventors or entrepreneurs. Excessive application of precautionary principles can inhibit very desirable progress.

But it’s implausible to conclude that no scrutiny or debate is either useful or feasible. It’s inherently unhealthy for any society to see technologies as things which emerge magically, and over which there is no possibility of control".
But who can conduct a valid and valuable technological assessment ('TA')? Mulgan lists some possibilities:
"Who might make these assessments? And who might act on them? Interest in this field is currently limited to a few big funders (like the European Commission and research councils). But there are many other potential user/creators of more systematic assessments of innovations at different stages of development:
  • Governments, innovation agencies and with them regulators and policymakers, at national or transnational levels. Most TA is attached to governments or parliaments.
  • Businesses and investors -- including ones committed to corporate reporting on environmental, social and governance issues, or employee organisations. This is a very underdeveloped field [It may be underdeveloped, but there are many fields in which this would be hotly disputed. Pharma, agrichemicals, energy, much of the ICT sector and cybersecurity, to name a few].
  • Universities and research centres -- which have more capabilities, and the whole panoply of science and technology studies to draw on.
  • Citizens, and NGOs, social movements, media -- aiming to represent a civic interest, though these usually campaign for or against technologies rather than playing an overt role in assessment.
Each of these might judge innovations in different ways. But there may be some benefit in common frameworks, language and analytical technique, for example around descriptions of risk and opportunity, or design of experiments to improve knowledge about these. And there should be great advantages in more truly society-wide processes that debate in a rounded way the possibilities and threats of emerging technologies".
We would suggest that, if TA is a worthwhile exercise, it need not be confined to any one of the listed groups alone. At present however it is far easier for some groups to obtain and analyse data than for others, and some are more comfortable than others when dealing with data-driven evidence.  It would be good to know, for instance, how much use is made of patent data by environmental and health organisations: would they be better placed to argue in favour of a redirection of investment from one area of technology to another if they had before them the sort of data generated by patent analytics, showing where innovation funding has already been committed and likely explaining why businesses are reluctant to steer from one area of technology investment towards another.

We also note that some groups are more inclined towards the policy dimension of an assessment than towards its technical merits.  For example, a pro-privacy lobby group and a group of private sector security consultants are unlikely to start from the same place when evaluating the social utility of a new surveillance technology. 

So where does Nesta go from here? The paper concludes with the following comments:
This note is a sketch and doesn’t pretend to be definitive. It aims to contribute to the conversation about how we fill the space between two undesirable, and intellectually incoherent, poles:
  • On the one hand a hard precautionary principle which tries to stop any discovery or invention that might bring with it risks and losses;
  • On the other hand the view that, because any assessment is difficult, we should just let technologies develop according to the push from scientists and inventors, and pull from markets.
Neither position adds up. But finding a sensible path between these extremes is complex, even though it’s clearly important for innovation ministries, agencies and funders".
Mulgan welcomes comments and suggestions on who is doing TA well and, more generally, on better approaches than the ones he has suggested. He adds: "I’m less interested in comments which just reiterate the difficulties".  If you can help him, you can contact Nesta here.

Historical footnote: Nesta used to be an acronym, NESTA, which stood for National Endowment for Science, Technology and the Arts

Monday, 25 July 2016

Verizon takes the cake: Excalibur is left with the crumbs

Yahoo, in happier days ...
News today is that much of the tastiest bit of what the BBC calls "faded internet star" Yahoo has been gobbled up by US telecoms giant Verizon. You can read the headlines on Reuters, Bloomberg and on technology news channel TechCrunch here.

This blogpost looks at one small item relating to this deal: a chunk of the cake that was left on the plate when the rest of Yahoo got swallowed. Writes TechCrunch:
"As of today, the business that will stay behind post-acquisition by Verizon includes Yahoo’s cash, its shares in Alibaba and Yahoo Japan, Yahoo’s convertible notes, certain minority investments, and Yahoo’s non-core patents (called the Excalibur portfolio) [there are around 4,000 of these, for which Business Insider talked up a much-criticised US$ 3 billion price tag, discussed here in "The Yahoo patent portfolio: what price a reasonable valuation?"].

IP that is connected specifically to Yahoo’s core assets will be part of the Verizon acquisition, and Yahoo is still looking for a separate deal for the patents that are in the Excalibur portfolio. That portfolio is estimated at upwards of $1 billion by Yahoo [for more on Excalibur and what was hoped of it see "Fireworks or fire sale? Getting a grip on Excalibur", here].

There are around 4,000 patents, both issued and applications for pending patents, as part of Excalibur, Yahoo said today, but the implication was that they were not getting the kinds of offers that it had hoped to get. “We didn’t want this to be an afterthought to the rest of the assets,” chair of the strategic review committee, Tom McInerney, said in a conference call today. It also sounds like there is an option either to continue trying to sell them, or perhaps license them directly, which is already the case with some of these patents, McInerney said today".
The suggestion has been made that the Excalibur package was not a fire-sale, that its patents and applications were of core importance and that there was concern that the Excalibur portfolio might fall into the hands of a rent-seeking purchaser [see Backchannel here].  To date, however, there does not appear to have been a rush to form a queue outside the company's door in order to place a plausible bid. There may be many reasons for this. Possible purchasers, forgetting the value of IP analytics, might be ploughing through the laborious task of manually assessing the distribution, footfall and duration of these geographically limited and time-sensitive assets.  Or they they may be indulging in a Dutch auction, waiting for the price to fall below the floor. Or the patents collectively may not add up to a sufficiently manageable and exploitable package to make acquisition worthwhile. 

Whatever the reason, the price at which the purchase of these potentially powerful but depreciating assets might be worthwhile remains the subject to the vagaries of expectation and speculation, leading to hesitation and subsequent re-evaluation. It is a shame that this should be the case. Tools exist for a more scientific approach to the assessment and pricing of patent portfolios. They should be used.

Friday, 22 July 2016

"Patent Strategy and Cost Management: How Many is Enough?": a reminder

Earlier this month we posted this notice on "Patent Strategy and Cost Management: How Many is Enough?" --  a forthcoming Aistemos webinar which takes place on Tuesday, 16 August 2016, starting at 1500 pm BST. The thinking behind this webinar can be explained with a few short words on the topic of "How many is enough?", a question that refers to patent portfolios and their management.  As the organisers explain:
"It is too easy to accumulate large portfolios, but harder than ever to be sure that they contribute to the organisations IP and business strategy". 
Contributors to this webinar are Nigel Swycher (Aistemos CEO) and  his colleague Marcus Malek (Head of Strategy), who will review the experiences of major corporates that have used patent analytics in order to deliver major savings in portfolio management costs [our recent blogpost here offers a case study in how such costs savings can be made]. In short, those companies do this by optimising their internal strategy and benchmarking their approach by reference to the activity of similar organisations.

Over the course of 20 minutes, Nigel and Marcus will explain how advanced data analysis and analytics provides the opportunity to
  • understand the economics of building a global portfolio
  • compare patenting strategy and cost across internal divisions, and by reference to similar technologies
  • benchmark your company or division against the cost profiles of other similar organisations
  • utilise cost profiling as a means to gain unique competitive intelligence
  • please reserve your place now and register below.
There will also be an opportunity to ask questions, which Nigel and Marcus very much welcome.

You can register for this webinar by clicking here.

Wednesday, 20 July 2016

More than words can say: how IP fares in the GAO Glossary

A fresh version of the Glossary of Terms Used in the Federal Budget Process, first issued in the United States by the Government Accountability Office (GAO) in 2005, has just been released. Most readers of this weblog, being involved in the development of business strategies that are supported by intellectual property portfolios or that seek to create them, will have little or nothing to do with the activities of the GAO. However, US policymakers, legislators and civil servants in the USPTO and elsewhere will be familiar with it, and anyone involved in tax-efficient investment and the harvesting of trade-driven profits is likely to feel the GAO's breeze.

The 20-page Glossary has four entries that refer directly to intellectual property. They are, in alphabetical order:
business fixed investment: Spending by businesses on structures, equipment, and intellectual property products, such as software. Such investment is labeled “fixed” to distinguish it from investment in inventories.
The use of the word 'products' as a qualifier is probably not intended to limit the reference to IP in such a way as to exclude 'services', since the implication is that the IP is itself the 'product'.
capital: Tangible and intangible resources that can be used or invested to produce a stream of benefits over time. The capital stock consists of land and the stock of products set aside to support future production and consumption, including business inventories and fixed capital (residential and nonresidential structures, producers’ durable equipment, and intellectual property products, such as software). Human capital is the education, training, work experience, and other attributes that enhance the ability of the labor force to produce goods and services. The capital of a business is the value of the instrument that is put at risk by the business’s owners. In an accounting sense, capital is a business’s net worth or equity—the difference between its assets and liabilities. Financial capital comprises funds raised by governments, individuals, or businesses by incurring liabilities such as bonds, mortgages, or stock certificates.
There is no specific reference to know-how and trade secrets, so it is unclear whether they fall within the ambit of IP or not. It may well be, though, that know-how which resides within the personal knowledge and experience of employees will fall within the category of "human capital".
federal investment: Expenditures by the federal government for long-lived assets that produce a stream of benefits over time. Those assets include structures, equipment, and intellectual property products (such as software and research and development).
The addition of the words "research and development" (R&D) may be significant here, in that expenditure which is designed to create IP products will still be regarded as "federal investment" if it is directed at R&D from which no IP results.
investment: Physical investment is the current product set aside during a given period to be used for future production; it represents an addition to the capital stock. As measured by the national income and product accounts, private domestic investment consists of investment in residential and nonresidential structures, producers’ durable equipment, intellectual property products, such as software, and the change in business inventories. Financial investment is the purchase of a financial security, such as a stock, bond, or mortgage. Investment in human capital is spending on education, training, health services, and other activities that increase the productivity of the workforce. Investment in human capital is not treated as investment by the national income and product accounts.
Here IP investment nestles among the tangible items in which investment is made. /This does not of course mean that IP has ceased to be an intangible asset.

So what does all of this actually mean? In the great scheme of things, probably very little. But in terms of the general incremental rise in awareness of IP, its significance, and the comfort with which those outside the IP community recognise and use the term themselves, it's good to see not only that reference is made to IP but that it is presumed to be sufficiently familiar for there to be no perceived need to add it to the list of terms defined.

Tuesday, 19 July 2016

Innovation in the Eurozone, money -- and data

"The Effect of Innovative Activity in Firm Performance and Development: Analysing Data from Eurozone" is the grand title of a recently published paper by Ilias A. Makris (Technological Educational Institute of Peloponnese, Greece) for the International Journal of Business and Economic Sciences Applied Research, Vol. 9, No. 2, 2016. It's available for download from the excellent SSRN service hereYou can get an idea of what this short paper (just six dense sides, inclusive of figures and bibliography) is all about from its abstract:
Purpose – The purpose of this paper is to examine the effect of Innovative Activity on firm performance and growth. Active Research and Development is considered to be directly related with development, prosperity and growth, in micro and macro level and a key factor in hindering economic recession.

Design/methodology/approach – We analyse economic data from listed firms of selected Eurozone country-members in order to associate Research and Development with performance indicators in firm and country level. For that purpose, several firm data were collected from WorldScope data base and macroeconomic data from Worldbank database. The period examined is between 2002 and 2012, with a special focus on current financial crisis (after 2007). The empirical process includes descriptive statistics and logistic regression analysis.

Findings – Findings indicate the crucial effect of innovative process in economic performance and development in firm and country level. The latter highlights the urgent need for public support in order to spur innovative activity and high-tech exports, especially in countries that were heavily affected by recession.

Research limitations/implications – Some research limitations are the large number of missing cases in WordScope database, as many firms after the beginning of current crisis exit stock market. Furthermore, the other part of the economy, the Small and Medium Enterprises does not exist in the analysis, as listed firms are mainly large and mature companies.

Originality/value – The results tend to highlight the need for common policy measures in the Eurozone, in regard to such issues, instead of imposing horizontal budgetary constraints in specific countries (like Southern Europe), hindering the vicious recessionary circle.
It is a shame that the period under study is the decade leading to 2012, since arguably so much has changed in the intervening time that we should be cautious to assume that its findings are applicable now. Be that as it may, the study should not pass without comment.

At least in
the Eurozone ...
First, the study reminds us of the important function of money as a lubricator for the innovation process.  It needs to be present from the earliest stages of the innovative process, to subsidise or incentivise innovative activity that lies beyond the personal resources of the innovator and which, on account of the risk factor, may not attract private funding. Money is also needed at the other end, once an innovative idea has been rendered into practice, so that prospective customers and consumers can afford to buy the resulting product or service.  An economy that is starved of money, or at least kept short of it, is an economy that will struggle to support and sustain innovation.

Secondly, the author refers to the dearth of relevant data, in particular on SMEs, which inevitably reduces the value of the research undertaken here.  Not just academic researchers in economics but those of us who are engaged in any sort of data analysis are forever limited in what we can achieve by the quality and the availability of the data that is analysed.  We seem to have reached a point at which computer science and software have raced ahead of the game, while techniques for gathering the most up-to-date, relevant and reliable data have lagged behind.  

Are we in danger of knowing more and more about less and less? Very possibly so. But let us hope that those businesses and bodies on whose data we all rely will be able to achieve a satisfactory measure of catch-up. If not, we will all be performing wonderful tricks ad infinitum on tired and scanty data.

Monday, 18 July 2016

Cutting unnecessary portfolio costs: an engineering company makes savings

This month's case study takes a look at the application of IP analytics to the generally unsexy, humdrum but often critically important issue of cost management.  This exercise looks at the savings that can be made by an engineering business with global reach.

**************************************************************

Global Engineering Company Eliminates Unnecessary Portfolio Costs

Objective: the IP team was mandated to shave 15% off the company's budget without inflicting an adverse impact on the quality of its patent portfolio.

The challenge

Understanding the various costs associated with a large portfolio is a complex activity. This company’s portfolio had been built up over decades, and was the result of a range of acquisitions across numerous geographies in a fast-moving technology area.

Assessing, analysing and manipulating the data relating to the portfolio history requires research, and either manual effort or complex computational calculations. The challenge is compounded by the fact that, to be useful, the reviews have to be conducted regularly.

Benchmarking the portfolio against the strategy of competitors is challenging due to difficulties in aligning ownership, status, age, conversion and territorial data at a technology level.

The solution

Access to the Aistemos Cipher analytics tool enabled the team to respond to the challenges in the following ways:

1. Portfolio analysis

By uploading details of the patent portfolio from the patent management system, Cipher applied its unique cost estimation solution to produce a view of historic and current patenting costs by technlogy. Combined with Cipher’s objective and unique cost data, the team were able to make valid comparisons.
Figure 1: estimated 10-year expenditure
It was immediately apparent that there was a mismatch between the technologies critical to the business and parts of the portfolio that were consuming disproportionate amounts of the patenting budget.

2. Territorial analysis

Cipher analysed the portfolio at the technology level and identified similar portfolios owned by competitor and comparable companies. By combining territory, cost and status information, Cipher generated an instant view of territorial coverage and how this compared to others.


Figure 2: heatmap of geographic protection of technology area
This analysis highlighted a number of anomalies. There were many patent families that were being protected in countries that were no longer of strategic importance. This provided a rational and objective basis to inform a more aggressive approach to lapsing.

3. Pipeline analysis

Cipher was able to analyse the proportion and time for patents to convert to grant. With this information, the team could consider the extent to which budget was being focused on areas that were not contributing to long-term value.


Figure 3: Conversion rate (Control software technology)
The company was able to identify areas where it was achieving relatively low conversion rates compared to its competitors. This allowed the team to conduct a more detailed review of a range of issues from patent office trends to the performance of external counsel.

Impact

As a direct result of the analysis:

• Immediate plans were developed by the IP team to reduce cost by lapsing patents in non-core technologies and jurisdictions as well as improvements in conversion rates
• Routine portfolio reviews now include IP analytics, enabling more effective monitoring and better reporting
• Better understanding of the patent portfolio’s relevance and contribution to the overall business strategy.

To take a look at earlier Cipher Case Studies, which give a good idea of the sort of things that IP analytics can achieve, click here.

Friday, 15 July 2016

Onex and Baring pay billions, but what will they do with the TR IP business?

Earlier this week news and information service Thomson Reuters had the chance to post some breaking news about itself, in "Thomson Reuters to sell IP & science unit for $3.55 billion".   The story, in relevant part, reads as follows:
"Thomson Reuters Corp ... on Monday said it agreed to sell its intellectual property and science business to private equity firms Onex Corp ... and Baring Private Equity Asia for $3.55 billion in cash.

The business, which has 3,200 employees, provides intellectual property and scientific information and associated tools and services to governments, universities and companies.


...   The news and data provider said in November it was exploring strategic options for the unit, which had revenue of about $1 billion in 2014.  Analysts have estimated that the business would be valued at more than $3 billion, or more than 10 times EBITDA (earnings before interest, tax, depreciation and amortization). The division contributed about 8 percent of Thomson Reuters' total revenue of $12.2 billion in 2015. Reuters had earlier reported that the company was discussing selling the units in parts to facilitate a divestiture that could raise more than $3 billion. ..."
What does this all mean?  This blog picked up a post last December by Hugh Logue (Outsell) in which the theme of "all change" in the IP analytics sector was discussed [see "Changing of the Guard as CPA, LexisNexis mop up analytics firms", here].  We turn again to Hugh now, and quote his comment on this week's deal, from his latest Insight on the topic:
"There are big opportunities to turn some of Thomson Reuters products that were originally designed for print, such Derwent World Patents Index, into data businesses that can leverage advances in artificial intelligence technology to create some revolutionary solutions, such as having machines create inventions using AI".
In all modesty we can say that Cipher is such a revolutionary solution.

Thursday, 14 July 2016

Innovating in the Digital Economy: when patents don't tell the whole story

The Global Information Technology Report 2016: Innovating in the Digital Economy has recently been published; you can access it online here. A comprehensive survey of the subject, it weighs in at 306 pages. Its pedigree is impressive too: the editorial team consists of Silja Baller (an economist who specialises in international trade as well as regulation and competition issues with the World Economic Forum), Soumitra Dutta (dean and professor of management and organizations in the Samuel Curtis Johnson Graduate School of Management, Cornell University) and Bruno Lanvin (an Executive Director of INSEAD's European Competitiveness Initiative Global Indices projects, as well as a Board Member of ICANN).

This Report is the fruit of a special project within the framework of the World Economic Forum’s Global Competitiveness and Risks Team and the Industry Partnership Programme for Information and Communication Technologies. Unlike so much expert literature, this Report does not shy away from talking about patents: the p-word is used nearly 350 times, and gets a plug in Key Finding 1. There the Report states:
"The digital revolution changes the nature of innovation. One of the key characteristics of the digital revolution is that it is nurtured by a different type of innovation, increasingly based on digital technologies and on the new business models it allows. In addition to making traditional research tools more powerful, it allows for new and near-costless types of innovation that require little or no R&D effort. Examples include the digitization of existing products and processes, distributed manufacturing, blockchains, and advertising-based “free services” as well as the prospect of more “uberized” activities in multiple sectors, including transport, banking, entertainment, and education. 
The NRI [= Networked Readiness Index] data show that the minds of business executives around the world are increasingly focused on innovation, as reflected by the steady upward trend in firms’ perceived capacity to innovate. Traditional measures for innovation, such as the number of patents registered, are picking up only part of the story. Instead, new types of innovation, such as business-model innovation, look set to become an important part of the innovation story: executives in almost 100 countries report increases in the perceived impact of ICTs [= information and communication technologies] on business-model innovation compared with last year".
Seven European countries make the Top Ten
Previous Aistemos blogposts on trade secrecy have commented on the problems faced in analysing developments in a sector in which innovatory trends and activity are not easily susceptible of tracking because they are not visible through rights registration systems. This is why businesses built on trade secrets and many designs and copyrights, can slip beneath the analysts' radar. 

The absence of perfect information about intellectual property right holdings is both a challenge to the analytics industry and a reminder that, where perfect data is not available, it is imperative to make the best use of such information as is available. This includes data concerning IP litigation and licensing deals as well as corporate transactions and the regulatory activities of competition authorities. 

Wednesday, 13 July 2016

Something new under the Sun? Photovoltaics patents take the limelight

Media coverage of Tesla’s offer to acquire SolarCity last week was largely focused on the complications of the deal created by conflicts of interest due to Elon Musk’s overlapping roles as Tesla’s CEO and Chairman of SolarCity. This deal does however also show the growing role and importance of solar power as a source for renewable energy. This example is especially strong, with Tesla representing a shifting industry that relies heavily on finite resources. With photovoltaics in the spotlight, this Cipher Snapshot aims to explore the field and map out key players and trends in the market.


Figure 1 gives a snapshot of the market, looking at size and growth rate from the past three years. Sharp stands out as leading the pack on portfolio size by a large margin.  However its portfolio is declining, enabling other companies to take the lead. German and some American companies exhibit incumbent behaviour with relatively large portfolios and low growth rates. Most momentum is exhibited by DelSolar and Hanwha Techwin (Taiwanese and Korean companies respectively). They have medium-sized portfolios with high growth rates closing in on the IP leaders.


Figure 2 shows granted and pending patent families held by the different companies. Sharp, Bosch and Schott hold the most patents, but have very different portfolio compositions in terms of the granted/pending split. Excluding Sharp, German companies seem to have the biggest pipelines in absolute terms with Bosch, Schott, SMA and SolarWorld having substantial pipelines.


In Figure 3 we can see Photovoltaics patenting activity broken up into two technologies; Solar cells” (the actual make-up of the cells) and “System” (cells combined with batteries, converters, power management etc.). Overall, filing activity hit a high between 2009 and 2011. Solar cell patenting exhibits strong fluctuation throughout the years with the highest filing activity in 2009. System patents show a steadier and slightly positive development in activity with the exception of 2011 when system filings massively surged.


Combining companies and technologies, Figure 4 shows the companies’ share size and its growth/decline in the past five years. Although previous charts showed a general increase in patenting, this view shows that there has been a change in terms of who is growing most, when comparing the players relative to each other.

Among the large players, Sharp and Schott Solar stand out with declining share of the patents relative to the rest while Bosch is evenly split technology-wise and growing in both areas. The greatest growth can be found among the smaller Chinese and Asian companies.


Table 1 explores the companies’ territorial coverage and we see widely different strategies. Chinese and US companies mainly pursue their home territory. German and Asian (non-Chinese) companies, on the other hand, have a broad geographic profile with strong coverage in the US, favouring it ahead of their respective home markets. This is surprising as it goes against common Asian company pattern of quite narrow home market protection.

The activity in the photovoltaics market shows global momentum, with German, Asian and American companies playing for pole position. Sharp is a strong leader but the rest of the field is closing in. Other Asian companies such as DelSolar and Hanwha Techwin are making up a lot of ground with geographically broad patent portfolios.

Whatever the outcome, we can be certain that the increased global competition we see in the photovoltaics market will drive further innovation in this sector.

This Cipher Snapshot can also be accessed from the Aistemos website here.

Tuesday, 12 July 2016

Living with IP uncertainty: fatal, or just inconvenient?

Yesterday's Aistemos blogpost ("Majors, patent facts and pebbles in the Patent Pond", here) commented on an article by Bruce Berman that touched upon the issue of uncertainty within the operation of the United States patent system and the extent to which it contributed to a recent fall in the number of patents granted to major businesses. Our position was that uncertainty has always been part of the patent system and that it was therefore difficult to attribute a fresh trend in patent grants to a feature that is itself something of a constant.

This post led to an exchange of points of view on Twitter about the impact of uncertainty in the patent system, which in turn has caused us to make some further comments about uncertainty in the context of innovation and developing new products and services. In particular we invite readers to consider the following:

* Some types of uncertainty that have an impact on intellectual property-based ventures are shared between all players in the market but their resolution is made known to all of them at the same time. For example proposals for statutory reform are resolved by the publication of an enactment following a due legislative process. Likewise, authoritative judicial rulings on patent-eligibility, injunctive relief for infringement and so on have the effect of simultaneously resolving a shared uncertainty for all parties. In such a situation those who are affected may have the option of participating in the outcome, by lobbying for for a specific legislative reform or by submitting an amicus brief alone or in conjunction with other interested parties.

* Other types of uncertainty can have an equally substantial impact on all players in the sphere of innovation and new product development without being related to intellectual property at all. The availability of investment capital and the rate of interest on the repayment of loans fall within this category but, unlike the uncertainties described above, these ones cannot generally be affected at all by the parties' actions.

* A third variety of uncertainty relates to the impact of regulatory features of trade. Pharmaceutical and healthcare products may be blocked if their efficacy or safety cannot be established. Other innovations may be kept from the market by considerations relating to their environmental impact or, in the case of high tech products and systems, by rules that restrict the transfer of technology which has military or strategic significance. Competition law and antitrust considerations may also have an adverse impact on an IP owner's aspirations to secure the market advantage that its IP portfolio potentially bestows. In all these cases the uncertainty is identifiable, the rules are susceptible to interpretation and those affected by them can press for a favourable application of the relevant regulations, seek to adapt their innovations, sell their uncertainty to a buyer willing to accept the risk inherent in it, moderate their trading behavious or simply cut their losses and abandon their enterprise.

* A fourth species of uncertainty has nothing to do with the validity of intellectual property rights, their enforceability or their potential for commercial exploitation, since it relates to the willingness of the ultimate consumer to buy into it at a purchase price that makes the project viable. Some innovations have been notably successful in attracting early adapters at initially extremely high prices on account of their greatly enhanced utility or their prestige-bestowing status: think cellphones, personal computers and flat-screen monitors. But it may be far more difficult to persuade consumers to make the same investment in a more advanced lawnmower or an internet-enabled intelligent refrigerator until prices fall more closely in line with consumer expectations and preferences.

* A fifth sort of uncertainty is that which relates to the intellectual property system but is found principally at its fringes, where the validity or enforcement of a specific right is at stake. This uncertainty affects only the owner of the right and those potentially affected by it (such as licensees, competitors and infringers) rather than the IP community at large. This is because, though there may also be uncertainties relating to the interpretation of the law, the main area of uncertainty is evidential in nature since it turns on the determination of questions of fact ("will the patent be held valid against the prior art?", "does the alleged infringement fall within the scope of the registered trade mark?", "has there been a fair use of a copyright-protected work?"). Here the resolution of the uncertainty is addressed by litigation that has its own theoretically self-correcting mechanism though appeals to a higher instance.

* The sixth sort of uncertainty relates to how an IP owner's market evolves in time, space and substance. Which competitors are strengthening their IP holdings, and in which markets? Which are filing for fresh rights and which are buying into the rights already granted to others? Which may be redeploying their resources in developing competing technologies rather than competing products using the same technology? Uncertainties like this are what, it is argued here, are among the most important for any business to address -- and they are also the easiest to resolve, now that the technology and methodology of IP analytics have come of age. The answers that IP analytics provides can help steer innovation priorities, reassure investors and generally aid in forward planning.

In short, while some form of uncertainty is hard-wired into every legal system and every type of economy, some types of uncertainty are easier to address than others, and IP analytics is able to offer some assistance in this regard.

Monday, 11 July 2016

Majors, patent facts and pebbles in the Patent Pond

Our attention was caught last week by "A record number of major holders were granted far fewer US patents", an informative article on IP CloseUp by long-time IP analyst and respected patent-watcher Bruce Berman.  At the core of this article lies the observation that, while total US patent grants were virtually flat, according to USPTO data [a tiny slippage from 326,032 to 325,979],  many leading US holders received significantly fewer US patent grants in 2015.

Why should this be so? According to Berman, "patent reform and uncertainty are the most likely reasons why".  This may well be so, but it never hurts to add a few further considerations.

Pebbles in the Patent Pond

First, while there is no doubt that a substantial level of uncertainty exists, over statutory patent reform, the vicissitudes of Federal Circuit decisions and the Olympian rulings from the US Supreme Court, those with long memories will recall that uncertainty has existed almost continuously since the 1960s: factors such as the makeover of BIRPI and its rebirth as a policy-sensitive, proactive WIPO; the introduction and growth of the Patent Cooperation Treaty's system, the constant battles to establish international norms that adopt or reject grace periods, the replacement of GATT by the World Trade Organization with the compulsory acceptance of TRIPS, the emergence of the European Patent Office and other regional patent administration authorities, the admission of Russia and then China to the family of patent-granting nations, Doha and the prospect of loss of control of pharma patents, plus experiments with peer-to-patent and the Patent Prosecution Highway -- all of these have fuelled speculation, raised or dampened expectations, diverted or concentrated investment and generally cast pebbles into the Patent Pond, causing ripples that continue to affect the innovation community long after their initial impact.

Time lag

Ripples take time to spread.  When we talk of a fall in patent grants in 2015, we must remember that granted patents may have a lengthy gestation period and that a full explanation may require investigation of all sorts of other factors that are not immediately visible in 2015 itself.  These factors will include considerations such as how many applications were actually filed in the preceding years, which in turn may be governed by considerations such as the availability of investment cash for early stage research and/or knocking a concept into a viable product or process.  Businesses may also hold up on pressing to protect the outcome of ongoing research when competitors or consumers signal a paradigm shift by opting for a new technology standard that was previously too expensive or inconvenient.

Other options

Even where it is possible to grow one's own patent portfolio from one's own resources, other options exist.  That is why it is a worthwhile exercise to measure any decline in patent filing and grant against what it is that companies decide to put into their shopping baskets: are they acquiring patent portfolios from startups, allies or competitors? Are they buying into FRAND-based technical standards instead? Are they shifting towards reduced control but faster product development through open innovation-based product design?

This blogpost will not attempt to answer any of the questions it has been posing. It will however offer a couple of graphics, reflecting the nature of the decline in patent grants both from 2013-2014 and from 2013-2015.







Below are a couple of tables that flesh out the recent trend with some solid numbers.  The first simply charts year-on-year changes.

The second offers a global perspective rather than a purely US-oriented one, from which it can be seen that -- while the US remains by far the most valuable and sought-after target for IT patents -- some mega-companies are clearly concentrating heavy resources on patenting outside the 50 States.

Friday, 8 July 2016

Patent Strategy and Cost Management: How Many is Enough?

"Patent Strategy and Cost Management: How Many is Enough?" This is the title of a forthcoming Aistemos webinar on Tuesday, 16 August 2016, starting at 1500 pm BST.

How many is enough?  This question is all about patent portfolios and their management.  As the organisers explain:
"It is too easy to accumulate large portfolios, but harder than ever to be sure that they contribute to the organisations IP and business strategy". 
This webinar gives you a chance to join Nigel Swycher (Aistemos CEO) and  his colleague Marcus Malek (Head of Strategy) as they review the experiences of major corporates which have used patent analytics in order to deliver major savings in portfolio management costs, by optimising their internal strategy and benchmarking their approach by reference to the activity of similar organisations.

Over the course of 20 minutes, Nigel and Marcus will explain how advanced data analysis and analytics provides the opportunity to
  • understand the economics of building a global portfolio
  • compare patenting strategy and cost across internal divisions, and by reference to similar technologies
  • benchmark your company or division against the cost profiles of other similar organisations
  • utilise cost profiling as a means to gain unique competitive intelligence
  • please reserve your place now and register below.
There will also be an opportunity to ask questions, which Nigel and Marcus very much welcome.

You can register for this webinar by clicking here.

Thursday, 7 July 2016

IP Strategy, Valuation and Damages: a new title

Books that fall within the purview of this blog's readership aren't so common that we can ignore their publication, which is why we are drawing the attention of our readers to IP Strategy, Valuation, and Damages, published this year by LexisNexis (details can be accessed from the publisher's website, here).  Evidence of earlier versions of this work, published in 2014 and 2015 by Matthew Bender, suggests that this book is regularly updated. If you don't have room for it on your desk or bookshelf, there's also a surprisingly more expensive e-book option.

The authors are Stevan Porter and Michelle Rakiec who -- in a welcome change from the books we normally get to hear about -- are both from IP-driven business consultancies rather than from academe [this should not be taken as an insult to academic writing, but rather as an expression of pleasure that the authors are people who not only have hands-on experience of their subject matter but are writing about it even though their tenure doesn't depend upon having to do so].  The pair are the driving force behind AdValum Consulting, which offers advice on the topics mentioned in the book's title. The consultancy does not offer a terrestrial address but, from the 312 code that prefixes its phone number, it looks as though its telephone is located somewhere in Illinois.  The authors are assisted in their efforts by a consulting editor, Albert B. Kimball, Jr., who is a partner in the Houston office of law firm Bracewell & Giuliani with both contentious and transactional experience, 

What does this book do? According to the publishers, it provides
" ... accessible and actionable information about intellectual property in a business context. The book begins by explaining foundational elements of IP, including the different types of IP, their unique characteristics, and their relevance in business, before moving on to valuation of IP, quantifying infringement damages, and how to use IP in business strategy articulation and execution. Each topic is addressed theoretically, linking familiar business concepts and frameworks to IP, and is punctuated with illustrative examples that provide real -world context and immediacy to the discussion".
According to the book's website, its seven chapters cover an introduction to intellectual property and its role in society, the principles of valuation, IP infringement and damages, strategic management, managerial uses and variable factors that affect IP management. 

All of this is commendable, of course, and we look forward to seeing this book so that we can give it more in-depth review.  Meanwhile, while it would be churlish to criticise a book that we have yet to see, we can at least offer a word of concern.  The authors and contributing editor are all US-based, and there's nothing wrong with that at all.  However, there is nothing in the publisher's website and promotional copy to indicate whether the content is purely US-focused or whether it has anything of value or relevance for the non-US reader.  

Some aspects of IP strategy, such as the timing and use of data and analytics in judging whether and when to file, seek licences or sue, are relatively portable from a US context to other jurisdictions. Other topics, such as damages and remedies for infringement, are so different that it is well-nigh impossible to offer generalised advice or to translate one's direct experience from one jurisdiction to another.  Antitrust and competition rules and financial institutions' regulation, lending policy and IP expertise are other topics in which advice or strategy that works well in one country may lead to costly misadventure in another.  

In conclusion, it is earnestly hoped that publishers will bear this in mind when addressing a readership whose problems are shared but whose solutions may be vastly different.